Nestle Philippines, Inc. vs. FY Sons, Incorporated

A witness who lacks personal knowledge of the transactions reflected in business records cannot authenticate those records under the exception to the hearsay rule for entries made in the course of business, rendering the documents incompetent evidence to prove the underlying obligation.

Petitioner Nestle Philippines, Inc. and respondent FY Sons, Inc. entered into a distributorship agreement whereby petitioner would supply its products for respondent to distribute to food service outlets. A time deposit of ₱500,000 was assigned to petitioner as collateral for respondent's credit purchases. After alleged violations by respondent involving sales to retail outlets and alleged non-payment of accounts, petitioner imposed fines, terminated the agreement, and seized the time deposit. Respondent sued for damages, alleging bad faith, failure to provide marketing support, and concocted charges to unjustifiably terminate the agreement and appropriate the market respondent had developed.

• The Distributorship Agreement: On December 23, 1988, petitioner and respondent executed a distributorship agreement where petitioner supplied products for respondent to distribute to food service outlets in specified areas. A deed of assignment assigning a ₱500,000 time deposit was executed to secure respondent's credit purchases. The agreement expired at the end of 1989 and was renewed on January 22, 1990, with a supplemental agreement executed on June 27, 1990.
• Alleged Violations and Fines: On July 2, 1990, petitioner fined respondent ₱20,000 for allegedly selling 50 cases of Krem-Top to a retail outlet in Tarlac, which respondent paid. In September 1990, petitioner imposed a ₱40,000 fine for a similar alleged violation, which respondent refused to pay.
• Termination and Seizure of Collateral: On October 19, 1990, respondent demanded damages for petitioner's alleged breaches and acts of bad faith. On November 5, 1990, petitioner sent a demand letter and notice of termination, citing respondent's outstanding accounts of ₱995,319.81. When the amount was not settled, petitioner applied the ₱500,000 time deposit as partial payment.
• The Complaint for Damages: Respondent filed a complaint alleging that petitioner lured it into the agreement with promises of support, then committed bad faith by failing to provide promotional support, deliberately failing to supply stocks promptly, intentionally diminishing respondent's sales by supporting a non-distributor, and concocting falsified charges to terminate the agreement without just cause and appropriate the market gains. Respondent sought actual, moral, and exemplary damages, attorney's fees, and the return of the time deposit. Petitioner interposed a counterclaim for the balance of the alleged overdue accounts, moral and exemplary damages, and attorney's fees.

• Judicial Admission of Unpaid Balance: Petitioner argued that respondent's witness, Florentino Yue, Jr., admitted in open court that the distributorship agreement was terminated due to respondent's unpaid balance of around ₱900,000, thus establishing the existence of the debt.
• Admissibility of Business Records: Petitioner maintained that the testimony of its credit and collection manager, Cristina Rayos, regarding the statement of account should have been admitted as an exception to the hearsay rule under Section 43, Rule 130 of the Rules of Court, as entries made in the course of business.
• Validity of Termination and Award of Damages: Petitioner asserted that it validly terminated the agreement under Article 1191 of the Civil Code and the terms of the agreement due to respondent's non-payment, rendering the award of actual damages and the refund of the time deposit erroneous. Petitioner further contended that respondent's evidence of actual damages was speculative and lacked probative value.
• Entitlement to Counterclaim: Petitioner maintained that it was entitled to its counterclaim for the unpaid balance, moral and exemplary damages, and attorney's fees.

• Context of the Witness's Statement: Respondent countered that the statement of its witness, Florentino Yue, Jr., was merely an answer to the presiding judge's question regarding the ground petitioner supposedly used for termination, not a judicial admission of the truth of the debt.
• Incompetence of Evidence: Respondent argued that the statement of account was undated, lacked proof of receipt, and was unsupported by signed invoices or delivery orders identified by competent witnesses with personal knowledge of the deliveries.
• Bad Faith Termination: Respondent maintained that petitioner concocted falsified charges of non-payment to justify the termination and seize the market gains developed at respondent's expense.

• Judicial Admission: Whether respondent's witness made a judicial admission of the unpaid balance during trial.
• Hearsay Exception: Whether the testimony of petitioner's credit and collection manager on the statement of account qualifies as an exception to the hearsay rule under Section 43, Rule 130 of the Rules of Court.
• Damages and Termination: Whether the award of actual damages and the order to refund the time deposit were proper given petitioner's alleged right to terminate the agreement.
• Counterclaim: Whether petitioner is entitled to its counterclaim.

• Judicial Admission: No judicial admission was made. The witness's statement was quoted in isolation and taken out of context; he merely reiterated what petitioner claimed was the ground for termination, without affirming the truth of the alleged debt.
• Hearsay Exception: The testimony was correctly disregarded. Section 43, Rule 130 does not apply because the witness lacked personal knowledge of the facts underlying the accounts. She was not involved in the deliveries, did not know the truth or falsity of the facts stated in the invoices and delivery orders, and was not even the credit and collection manager during the effectivity of the agreement. Furthermore, the invoices and delivery orders were self-serving, and the failure to present a competent witness to identify the signatures cast doubt on their veracity.
• Damages and Termination: The award of actual damages and the refund of the time deposit were affirmed. Petitioner failed to prove the unpaid accounts, invalidating the stated ground for termination. Both lower courts found that petitioner committed various violations of the agreement in bad faith, a factual finding binding on the Supreme Court. The award of actual damages did not exceed the amount prayed for in the complaint, thus requiring no additional docket fees.
• Counterclaim: The counterclaim was properly denied. Petitioner failed to prove the alleged outstanding accounts and, being at fault and in bad faith, cannot recover moral and exemplary damages or attorney's fees from respondent.

• Exception to the Hearsay Rule (Entries in the Course of Business) — Under Section 43, Rule 130 of the Rules of Court, entries made at or near the time of the transaction by a person deceased or unable to testify, who was in a position to know the facts and acting in a professional capacity or in the ordinary course of business, may be received as prima facie evidence. A witness who lacks personal knowledge of the underlying transactions and merely compiled records from documents handed to them by others cannot authenticate such records under this exception.
• Binding Effect of Factual Findings — Findings of fact of the trial court, when affirmed by the Court of Appeals, are binding upon the Supreme Court. This rule is especially stringent when the findings of both lower courts completely coincide.
• Jurisdiction over Claims for Damages — A court acquires jurisdiction over a claim for damages upon payment of the prescribed docket fee based on the amounts prayed for in the complaint. If the adjudged amount does not exceed the prayed-for amount, no additional filing fee is assessed.

• "The provision does not apply to this case because it does not involve entries made in the course of business. Rayos testified on a statement of account she prepared on the basis of invoices and delivery orders which she, however, knew nothing about. She had no personal knowledge of the facts on which the accounts were based since, admittedly, she was not involved in the delivery of goods and was merely in charge of the records and documents of all accounts receivable as part of her duties as credit and collection manager."
• "Furthermore, the invoices and delivery orders presented by petitioner were self-serving. Having generated these documents, petitioner could have easily fabricated them. Petitioner’s failure to present any competent witness to identify the signatures and other information in those invoices and delivery orders cast doubt on their veracity."

• Ballatan v. Court of Appeals, 363 Phil. 408 (1999) — Followed for the rule that a court acquires jurisdiction over a claim for damages upon payment of the correct docket fees.
• Benguet Electric Cooperative, Inc. v. Court of Appeals, 378 Phil. 1137 (1999) — Followed for the rule that if the award does not exceed the amount prayed for, no additional filing fee is assessed as a lien on the judgment.
• Bank of the Philippine Islands v. Leobrera, 416 SCRA 15 (2003) — Followed for the rule that concurrent factual findings of the trial court and the Court of Appeals are binding on the Supreme Court.

• Section 43, Rule 130, Rules of Court — Cited as the exception to the hearsay rule for entries made in the course of business. Applied to reject the admissibility of a statement of account because the witness who prepared it lacked personal knowledge of the underlying transactions and was not acting in a position to know the facts therein stated.
• Article 1191, Civil Code — Cited by petitioner to justify the termination of the distributorship agreement due to alleged breach. Rejected as a basis for termination because the alleged breach (unpaid accounts) was not sufficiently proven.

Reynato S. Puno (on leave), Angelina Sandoval-Gutierrez, Adolfo S. Azcuna, Cancio C. Garcia